Disclosures pursuant to the Sustainable Finance Disclosure Regulation (EU) 2019/2088
Applicable to StepStone Group Europe Alternative Investments Limited
(authorised by and registered with the Central Bank of Ireland as an alternative investment fund manager pursuant to the European Union (Alternative Investment Fund Managers) Regulations 2013 and as a management company pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (S.I. No. 352 of 2011), in each case as amended, supplemented or consolidated
from time to time).
Sustainability Risk Policy Statement
Pursuant to Article 3 of the
Sustainable Finance Disclosure Regulation (EU) 2019/2088
PART A: Introduction
StepStone Group Europe Alternative Investments Limited (the Manager) acts as an alternative investment fund manager to a diverse range of financial products (product) which invest into a range of asset classes and pursue a variety of investment strategies. The Manager in most cases either manages fund of fund strategies or delegates portfolio management to specialist third-party portfolio managers (Portfolio Managers). The Manager also provides investment advisory services to certain clients.
This disclosure statement outlines the way in which the Manager considers sustainability factors and integrates sustainability risks into its investment decision-making processes and procedures. As outlined in further detail below, the Manager has integrated these issues into all stages of its investment process.
Sustainability factors include environmental, social and employee matters, respect for human rights, and anti-corruption and anti-bribery matters (ESG Factors).
A sustainability risk is an environmental, social or governance (ESG) event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment (sustainability risks are referred to in this document as ESG Risks). ESG Risks are factored into various steps in the Manager’s investment process outlined below.
StepStone has an overarching Responsible Investment Committee (RI Committee) which is supported by StepStone Responsible Investment Working Groups (RI Working Group) for each asset class. The RI Working Groups and the RI Committee review the majority of investment proposals that are put forward to the investment committee for the relevant product.
PART B: Overview of the Manager’s investment process and the integration of ESG Risks
This part outlines the way in which sustainability risks are integrated into the Manager’s investment decision-making process.
In making investment decisions and providing investment advisory services, the Manager relies on investment advice provided to it by its affiliate Swiss Capital Alternative Investments AG (SCAI). The process outlined below also reflects the process followed by SCAI.
Integration of Sustainability Risks in the Manager’s Investment Process
The Manager considers sustainability factors and integrates sustainability risks into its investment due diligence and decision-making process with the aim of conducting comprehensive risk and opportunity analysis based on the belief that this has the potential to: (i) enhance the evaluation of forward-looking risk-adjusted returns of an investment opportunity; and (ii) protect value for investors.
1. Screening Against ESG Factors and Identifying Heightened ESG Risks
As part of the risk assessment and due diligence process on investments, an initial screening process relating to sectors with heightened ESG Risks is carried out.
The outcome of the screening process is that the RI Committee and/or the RI Working Group for the relevant asset class are notified of any heightened ESG Risks (e.g. pollution, modern slavery exposure) and relevant ESG Factors related to an investment opportunity. Examples of sectors with heightened ESG Risks include:
- Fossil fuels (including coal, tar sands, oil, gas);
- Nuclear energy;
- Gambling (including e-currency);
- Weapons; and
Additional investment restrictions may also be agreed to accommodate specific client screening and/or exclusion requests.
The Manager will seek to include standard investment restrictions for specified sectors in the delegation terms for certain asset classes and/or investment strategies, against which the Portfolio Manager will be required to assess investment opportunities.
An investment will not be automatically excluded from the investment process if it is assessed to involve exposure to heightened ESG Risks.
If the RI Working Group has a query about the suitability of specific investments when assessed against the relevant screening criteria, they will raise this with the relevant investment team.
2. Due Diligence Process
The Manager carries out a detailed due diligence process for each investment opportunity. The process followed depends on whether the investment opportunity involves delegating the management of a product to a Portfolio Manager or the Manager making primary investments in third-party funds (such funds being managed by third-party managers (Third Party Managers)), secondaries or co-investments. See Part C below for further information.
3. Investment Memorandums/Investment Committee Presentations
For each proposed investment, an investment memorandum is drafted which contains a dedicated responsible investment section (RI Section) that has been completed by the investment due diligence team. The investment memorandum will highlight any ESG Risks which have been identified as part of the due diligence process. The RI Section of the investment memorandum is reviewed in line with the relevant process outlined in Part C, Section 5 below.
4. RI Committee
When reviewing the content of the RI Section of the investment memorandum in line with the relevant process outlined in Part C, Section 5 below, the RI Committee will pay particular attention to investments for which ESG Factors have been identified during the initial screening process and where any heightened ESG Risks have been identified during the due diligence process. If the RI Committee has a query about the suitability of specific investments when assessed against the relevant screening criteria, they will raise this with the RI Working Group for the relevant asset class. For those investment strategies where the RI Committee reviews the investment memorandum as part of the investment process, it must approve the content of the RI Section of the investment memorandum before the investment memorandum can be passed on to the relevant investment committee for consideration.
5. Investment Committee
The investment committee will consider the content of the investment memorandum and will assess whether the due diligence on the investment opportunity, including the due diligence on ESG Factors and ESG Risks relevant to that specific investment has been satisfactorily completed. The investment committee will also discuss any material ESG Risks which have been flagged in the investment memorandum. One of the grounds on which the investment committee can veto moving ahead with an investment opportunity is ESG Risks. However, the presence of ESG Risks does not mean an investment will not be made – the investment committee will evaluate ESG Risks along with other relevant risks in determining whether the potential opportunity from the investment can reasonably be expected to outweigh the risks.
6. Monitoring and Reporting
Post-investment, the Manager requires Third-Party Managers and Portfolio Managers to notify it of any critical ESG Risks via an established ESG incident reporting process. Any such ESG Risks that are notified to the Manager will then be reviewed and investigated by a taskforce (constituted of the relevant RI Working Group/RI Committee, the investment team and representatives of the legal team) which will make a recommendation as to next steps. The Manager also discusses ESG Factors and ESG Risks during its regular meetings with Third-Party Managers and Portfolio Managers and seeks to engage with responsible investment management where it has a board seat or investor advisory committee membership. The Manager also seeks to advocate and support Third-Party Managers and Portfolio Managers in improving their ESG processes.
PART C: Identification of ESG Risks Through the Manager’s Due Diligence Process
1. Due Diligence Process: Primary Investments
When making a primary investment in a third-party fund, the Manager will carry out the same due diligence on the Third-Party Manager of that fund as it would when delegating portfolio management of a product as described in Part C, Section 4 below.
2. Due Diligence Process: Secondaries
In relation to secondary fund investment opportunities, the Manager will review any due diligence which was carried out on the primary investment opportunity, to the extent that this is available. If necessary, further due diligence will be carried out on the portfolio to identify any relevant ESG Factors and/or ESG Risks and the Manager will apply the guidance from the Sustainability Accounting Standards Board (SASB) Materiality Map, where appropriate.
3. Due Diligence Process: Co-Investments
The process of integrating ESG Risks for co-investments involves the Manager carrying out due diligence on the Third-Party Manager alongside which the co-investment will be made as well as the company, project or property into which the investment is to be made. In relation to the Third Party Manager, any due diligence previously carried out as part of a primary fund investment opportunity will be reviewed, if available. If not available, the Manager will carry out the same level of due diligence on the Third Party Manager as described in Part C, Section 4 below.
In relation to the investment opportunity, the Manager will either:
- Carry out due diligence to identify any relevant ESG Factors and/or ESG Risks and will apply the guidance from the Sustainability Accounting Standards Board (SASB) Materiality Map, where appropriate; or
- If investing alongside a delegate Portfolio Manager, review the due diligence that entity has carried out on the underlying investment opportunity, including in relation to any ESG Factors and/or ESG Risks.
4. Due Diligence Process: Portfolio Managers
The Manager delegates the portfolio management of many products which it manages to Portfolio Managers. As part of the detailed due diligence process carried out on potential Portfolio Managers, amongst other things, the Manager will assess whether the Portfolio Manager:
- Has a track record of any material ESG incidents taking place either at the level of the Portfolio Manager or at the level of its underlying investments;
- Has a process for identifying and understanding material ESG Risks and opportunities including the specific potential impact and associated risks of climate change on investments;
- Integrates any identified ESG Factors into, and considers ESG Risks as part of, its due diligence, investment decision making and deal structuring processes and, if so, to what extent;
- Reports all material climate change and ESG Risks to its final decision-making body;
- Carries out screening based on ESG Factors and heightened ESG Risks and/or has an exclusion list in place;
- Has a responsible investment policy in place and, if so, the comprehensiveness of that policy and the extent to which that policy has been implemented; and
- Is a signatory to any international standards such as the Principles for Responsible Investment or the Task Force on Climate-Related Financial Disclosures.
5. ESG Risks Identified Through Due Diligence Process
Primary investments: Any significant ESG Risks identified through the due diligence process will be brought to the attention of the RI Working Group and then the RI Committee prior to final review of the proposed investment by the relevant investment committee.
Delegations to Portfolio Managers and secondaries and co-investment transactions: Any significant ESG Risks identified through the due diligence process will be brought to the attention of the RI Working Group for the relevant asset class. The RI Committee will also review ESG Risks relating to certain investment strategies. ESG Risks will also be considered and discussed by the relevant investment committee as part of the final approval process for the proposed investment.
PART D: The Manager’s Expectations of Portfolio Managers
This part outlines the way in which the Manager expects Portfolio Managers to integrate sustainability risks into their investment decision making.
1. Integration of Sustainability Risks in the Investment Process of Portfolio Managers
The Manager expects, and takes measures to seek to ensure that, the Portfolio Managers which it appoints will:
- Take into account material ESG Risks as part of their overall investment process.
- Consider certain ESG Factors when carrying out due diligence on each investment.
- Take account of any ESG Risks arising and the potential financial impact of such risks on the return of an investment.
- Assess whether the potential pecuniary advantage of an investment outweighs the actual or potential material negative impact which could be caused by any identified ESG Risk (if so then a Portfolio Manager may still make the investment).
- Continue to consider ESG Risks and any impact on the value of the product as part of the ongoing assessment and management of investments for the full life cycle of the product.
- Notify the Manager of any critical ESG Risks via a set ESG incident process.
PART E: Additional Information
Responsible Investment Policy
The StepStone Group has put in place a group-level responsible investment policy (the RI Policy) which provides an overview of the StepStone Group’s approach to responsible investing. The RI Policy is published on its website and is available here: https://www2.stepstonegroup.com/l/501151/2020-05-27/6z89kg/501151/221005/StepStone_Responsible_Investment_Policy_May_2020.pdf
As a member of the StepStone Group, the Manager is required to act in adherence with the principles set out in the RI Policy. Those principles are applied in a manner that is tailored to each asset class and investment strategy and there are specific guidelines for each asset class.
The RI Policy is informed by StepStone Group’s commitment to the Principles of Responsible Investment’s six guiding principles and recommendations by the Task Force on Climate-related Financial Disclosures.
Transparency Statement relating to
Consideration of Adverse Sustainability Impacts
pursuant to Article 4(1)(b) of the
Sustainable Finance Disclosure Regulation (EU) 2019/2088
Consideration of Adverse Sustainability Impacts
StepStone Group Europe Alternative Investments Limited (the Manager) acts as an alternative investment fund manager to a diverse range of financial products (product) which invest in a range of asset classes and pursue a variety of investment strategies. The Manager delegates the portfolio management of a number of products to third-party portfolio managers.
The Manager integrates responsible investment/sustainability considerations into its investment process with the aim of conducting comprehensive risk and opportunity analysis based on the belief that this has the potential to (i) enhance the evaluation of forward-looking risk-adjusted returns of an investment opportunity; and (ii) protect value for investors.
Sustainability factors, including environmental, social and employee matters, respect for human rights, and anti-corruption and anti-bribery matters (ESG Factors) are factored into investment due diligence and decision making in a manner that is tailored to each asset class and investment strategy, including through:
- Consideration of sustainability risks (regarding which see the Manager’s disclosure of its policy with regard to the integration of sustainability risks pursuant to Article 3 of the Sustainable Finance Disclosure Regulation, which can be found above);
- Screening investments, whereby investments which would involve exposure to certain sensitive sectors; or investments in issuers which have exposure to certain sensitive sectors; or investments which involve heightened sustainability risks are identified and escalated to the StepStone Responsible Investment Committee and/or the relevant StepStone Responsible Investment Working Group (note that if the potential pecuniary advantage is assessed to outweigh the actual or potential material negative impact which could be caused by sustainability risks, then the Manager may still make the investment); carrying out due diligence on the comprehensiveness of the responsible investment policy and the management of sustainability risks and opportunities by third-party portfolio managers as part of the onboarding process; and
- Requiring all third-party managers to report on ESG Factors, including any enhanced sustainability risks arising, on a regular basis.
The Manager does not, however, currently take a uniform approach to the consideration of a defined set of ESG Factors in respect of all or a majority of the products which it manages and it does not consistently evaluate the adverse impacts of investment decisions made in respect of such products on those ESG Factors.
The regulatory environment in respect of sustainable investment is currently evolving and the expectations as to how an entity carrying out the same activities and offering the same types of products as the Manager should define and evaluate ESG Factors and their adverse impacts is not yet clear. As such, there is no definitive guidance available at this time in relation to the systems, controls and measures that the Manager would need to put in place in order to provide a Principal Adverse Impacts Statement in line with Article 4(1)(a) of the Sustainable Finance Disclosure Regulation.
In light of these circumstances, the Manager has decided not to voluntarily comply with the requirements under Article 4(1)(a) but will continue to keep this decision under review as the expectations of the regulatory authorities become clearer and the regulatory guidance and industry consensus on measures that would need to be taken to comply with this disclosure requirement further evolve.
Additional Information on Responsible Business Codes and International Standards
The Manager is a subsidiary of the StepStone Group. As demonstration of its commitment to responsible investment, StepStone Group LP and its consolidated subsidiaries became a signatory to the Principles for Responsible Investment (PRI) in 2013 and issues an annual Responsible Investments Transparency Report. The StepStone Group also adopted a Responsible Investment Policy in 2014, established a Responsible Investment Committee in 2017 and joined the Task Force on Climate-related Financial Disclosures (TCFD) in 2019. In addition, the StepStone Group is a member of the Sustainability Accounting Standards Board (SASB).
Remuneration Policy Statement
Pursuant to Article 5 of the
Sustainable Finance Disclosure Regulation (EU) 2019/2088
Applicable to StepStone Group Europe Alternative Investments Ltd
The Manager’s staff are required to comply with the Sustainability Risk and Due Diligence Policy to the extent the same is relevant for the performance of their function and, to the extent that such staff are “identified persons” for the purposes of the Manager’s Remuneration Policy, the expectation is that compliance with the Manager’s policies and procedures will be taken into account as part of their remuneration review.